Common Tax Deductions for Small Businesses
Deductions are a smart way to offset the costs of managing your small business. These financial breaks are an opportunity to reclaim some of the money you’ve invested in your company over the year; in fact, not taking the deductions is like leaving money on the table.
While tax season is several months out, keeping deductions in mind reminds you to track your receipts year-round, allowing you to be ready for next year. Below we explore some of the most common business tax deductions that will help your business save money.
Salaries and wages
Any payments you make to employees such as salaries, wages, bonuses and commission are tax-deductible business expenses. Contributions to employee retirement plans and benefit programs like childcare assistance are also tax deductible. Wages paid to sole proprietors and LLC members are not tax deductible because they are not employees; however, you can claim contributions to a personal retirement plan on your personal tax returns.
That’s right – you can claim a tax deduction just for paying taxes. You can deduct taxes associated with licenses, regulatory fees and real estate that you bought for business purchases. The taxes you pay for employing workers, such as FICA and unemployment tax, are fully deductible. If you are self-employed, these are not considered business tax deductions, but rather an adjustment to your gross personal income on your return.
Electronic devices and office supplies
You can generally write off any supplies or equipment you need to perform business. New computers, tablets, smartphones, cameras and other equipment are eligible for deductions if you use them to conduct business. Some items are used 100 percent of the time for work, like a vehicle in your fleet, and are therefore fully deductible (assuming you can prove their dedicated use). If you use your laptop both for business and personal use, you may only be able to claim a corresponding percentage.
Phone and Internet
In order for your devices to work, chances are you need utilities like electric, Internet and phone service. Even if you work from home and would be paying for Internet anyway, you can still claim a partial deduction if you need the Internet to conduct your business. If you have a clear delineation between your services - like a home phone and business phone – you can claim 100 percent of your business phone service.
Sometimes your job requires airfare, hotels, taxis, parking, tolls, etc. Save receipts for everything so you can claim deductions on these expenses. Some of the reasons that merit business travel include client meetings, vendor meetings, managing your rental property or convening an annual board or member meeting. Be sure to document how much time on the trip was spent actually performing business, especially if you combine the trip with personal travel.
With these deductions and others, it’s always best to save receipts or make a copy/take a photograph to properly document your expenses. A clear note about why an item is a business expense will be useful in case of an audit.
Whether you’re already tracking your expenses for deductions, or you need some help flagging what to save, our financial specialists are here to help. Contact Patin and Associates today to get started.